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States should be given power to levy service tax
February, 09th 2008
Andhra Pradesh is among the few states that has not raised tax rates and power tariffs over the last four years. But our tax revenues have been buoyant, thanks in a large measure to higher collections from value added tax (VAT).

More importantly, the states economy is on a roll and this has brought in more revenues to meet our expenditure commitments. The state is posed to achieve a GDP growth rate of 10.37% in 2007-08 as against 8.87% for in 2006-07.

The farm sector has recovered fully and we are targeting a growth rate of around 4.5% for the Eleventh Plan. Foodgrain production is expected to touch 180 lakh tonnes, which is 24 lakh tonnes more than the average production in the triennium ending March 31, 2007.

We have also embarked on a massive Jala Yagnam project to provide assured canal-based irrigation. When the projected is completed, our state will be able to contribute to the countrys food security the same way as Punjab, Haryana and West Bengal did during the first green revolution.

Alongside, investments are also pouring into the state with several companies, including those in the manufacturing and services sector setting up base here. Our manufacturing sector has been growing at over 8% during the last three years. Software exports have registered an over 50% yearly growth over the last three years against the national average of 35%.

We introduced VAT in April 2005 in lieu of sales tax. Revenues from VAT and central sales tax (CST) grew by 24% to top Rs 15,587 crore in 2006-07. We have budgeted collections at Rs 20,852 crore from these two sources in 2007-08, marking an increase of 34%. Our VAT revenues have grown by around 22% up to December 2007, which is the highest for the country.

Clearly, the effective implementation of VAT has helped widen the tax net and made tax evasion difficult. Compliance on the part of dealers has improved due to a host of factors including self-assessment, availability of input tax credit at every stage in the value chain and a reduction in trade diversion due to uniformity in tax rates across states. Rate wars between states have ended to a large extent.

VAT revenues have been buoyant despite several constraintsincluding a cut in the CST from 4% to 3%, exemption of products including coir, khandasari sugar from VAT and a reduction in VAT rates of many items from 12.5% to 4% and poor revenue realisation from petroleum products.

So I personally believe that both the implementation of VAT and higher economic growth are responsible for higher tax realisations in the state.

Two years from now, the Centre proposes to introduce a goods and services tax for an efficient, effective and tax payer friendly system in our country. All states want the power to levy service tax. We have the administrative machinery and collections will go up if the GoI agrees to it. We have given our views on the model GST to the empowered committee of state finance ministers.

I expect the coming Budget to have policy interventions that would provide stimulus to growth, especially for the manufacturing sector. It is crucial to sustain buoyancy in economic growth and also step up employment potential in the country. 

(The author is chief minister of Andhra Pradesh)
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